Wild and Mild (Mediocristan vs Extremistan)
Taleb distinguishes type 1, mild randomness in Mediocristan from type 2, wild randomness in Extremistan. The contrast concerns how strongly a single extreme observation can affect the total or average.
THE IDEA
Wild and Mild
If we follow my distinction of scalable versus nonscalable, we can see clear differences shaping up between Mediocristan and Extremistan. Here are a few examples.
Matters that seem to belong to Mediocristan (subjected to what we call type 1 randomness): height, weight, calorie consumption, income for a baker, a small restaurant owner, a prostitute, or an orthodontist; gambling profits (in the very special case, assuming the person goes to a casino and maintains a constant betting size), car accidents, mortality rates, “IQ” (as measured).
Matters that seem to belong to Extremistan (subjected to what we call type 2 randomness): wealth, income, book sales per author, book citations per author, name recognition as a “celebrity,” number of references on Google, populations of cities, uses of words in a vocabulary, numbers of speakers per language, damage caused by earthquakes, deaths in war, deaths from terrorist incidents, sizes of planets, sizes of companies, stock ownership, height between species (consider elephants and mice), financial markets (but your investment manager does not know it), commodity prices, inflation rates, economic data. The Extremistan list is much longer than the prior one.
When to use it
Evaluating investment strategies: recognizing that stock market returns are in Extremistan helps avoid naive diversification assumptions.
Assessing career choices: understanding whether an income is scalable (e.g., author, software developer) or nonscalable (e.g., baker, dentist) guides risk assessment and opportunity sizing.
Analyzing insurance models: mediocristan variables (e.g., car accidents) are well-behaved, while extremistan variables (e.g., earthquake damage) require different modeling approaches.
Interpreting scientific studies: many biological measures are in Mediocristan, but social measures like citations are in Extremistan—affecting how we generalize findings.
FROM THEORY TO EVERYDAY LIFE
In practice
Height (Mediocristan)
Within a defined human population, height is often modeled approximately by a normal distribution. No person can be millions of times taller than the average, illustrating Taleb’s type 1 randomness.
Wealth (Extremistan)
Wealth is extremely unequal; a single billionaire can have millions of times the wealth of an average person. This is type 2 randomness.
A MOMENT TO REFLECT
Put it to work.
Think of a field you work in: which examples fall into Mediocristan and which into Extremistan? How does that affect how you predict outcomes?
In your personal finances, are your income sources more like a baker (nonscalable) or a writer (scalable)? What implications does that have for risk?
When might an average or standard deviation conceal important tail risk? What assumptions would you check before relying on those measures?
Often confused with
CONTINUE THE CONVERSATION
Source texts
- The Black Swan The Impact of the Highly Improbable With a new section On Robustness and Fragility (Nassim Nicholas Taleb)